Which statement correctly differentiates the federal funds rate from the discount rate?

Which statement correctly differentiates the federal funds rate from the discount rate?

• A. The federal funds rate is the rate banks charge each other overnight; the discount rate is the rate the Fed charges banks for short-term loans.
• B. The federal funds rate is charged to consumers; the discount rate is charged to banks.
• C. The federal funds rate is a long-term rate; the discount rate is for international loans.
• D. Both rates are identical.

Answer: (A)